Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru

IMF Working Papers, March 18, 2022

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Canonical URL: Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru

Authors: Matthieu Bellon, Era Dabla-Norris, Salma Khalid, Juan Carlos Paliza, Jillie Chang, Pilar Villena
Published: March 18, 2022
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400204876.001

Study uses administrative data on firm-to-firm transactions and quasi-experimental variation in the rollout of electronic invoicing reforms in Peru to analyze diffusion of e-invoicing through firm networks and effects on tax compliance.
Voluntary e-invoicing adoption is higher among firms with partners mandated to adopt e-invoicing, indicating positive technology adoption spillovers.
Spillovers are stronger from downstream partners and from export-oriented firms.
Firms are less likely to continue transacting with a partner who has been mandated into e-invoicing; the effect is only partially reversed if both firms adopt e-invoicing, suggesting possible network segmentation.
Smaller firms who transact with partners mandated into e-invoicing report 11 percent more sales and pay 17 more VAT in the year that their partner is mandated to adopt e-invoicing, indicating positive spillovers in tax compliance behavior for this subset.

Voluntary adoption:
- Firms with mandated partners show higher voluntary e-invoicing adoption (positive technology adoption spillovers).
Directional and firm-type heterogeneity:
- Spillovers are stronger from downstream partners.
- Spillovers are stronger from export-oriented firms.
Network effects on transactions:
- Mandating a partner into e-invoicing reduces the likelihood that a firm continues transacting with that partner.
- If both firms adopt e-invoicing, the reduction in continuing transactions is only partially reversed, consistent with network segmentation dynamics.
Tax compliance outcomes for smaller firms:
- Smaller firms transacting with mandated partners report 11 percent more sales in the mandate year.
- These smaller firms pay 17 more VAT in the mandate year.

Technology adoption spillovers: observed increases in voluntary e-invoicing uptake among firms connected to mandated partners imply diffusion through commercial networks.
Compliance spillovers: increased reported sales and VAT payments among smaller firms linked to mandated partners are consistent with positive spillovers in tax reporting/compliance behavior.
Network segmentation risk: reduced continuation of transactions with mandated partners, and only partial reversal when both adopt, imply that digital mandates can reshape transaction networks and potentially segment markets.

Digitalization as a compliance tool:
- E-invoicing mandates can generate positive adoption and tax-compliance spillovers beyond directly targeted firms.
Attention to network effects:
- Policymakers should monitor potential network segmentation resulting from mandates, as some trading relationships may be discontinued.
Targeting and complementarities:
- Stronger spillovers from downstream and export-oriented firms suggest considering the position and characteristics of firms when designing phased rollouts.
Support for smaller firms:
- Given observed compliance gains among smaller firms connected to mandated partners, policies could combine mandates with assistance to small firms to capture benefits while mitigating adjustment costs.